Contrary to the notion that VAT is not charged on goods sold at discount. Article 39 of the Decree-Law provides, VAT is to be charged on goods or services even when they are sold at discounted price.
Value of supply is to be reduced by the amount discount offered. Meaning, VAT will be charged at such reduced amount.
However, the value for charging VAT will be reduced only when:
- Benefit of price reduction is passed to the customer
- The supplier funded the reduction – meaning discount is a cost to the supplier
For example. Dubai mall announces a flat off of 5% on all products. Value of ZARA top earlier was AED 50 and after reduction is AED 47.5.
- Here, the benefit is passed to the customer i.e. he is benefited by AED 2.5 because of off.
- Further, ZARA is incurring a loss because of price reduction, amounting to AED 2.5.
So, the taxable value for charging VAT shall be AED 47.5 and VAT will be AED 2.37.
Analysing the impact on customer’s pocket
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